News Column

Stillwater Mining Company Reports Second Quarter 2014 Earnings

August 4, 2014



ENP Newswire - 04 August 2014

Release date- 01082014 - BILLINGS, MT - Stillwater Mining Company (NYSE: SWC) (TSX: SWC.U) Stillwater Mining Company today reported second quarter 2014 consolidated net income attributable to common stockholders of $17.9 million or $0.14 per diluted share, compared to second quarter 2013 consolidated net loss attributable to common stockholders of $5.3 million or $0.04 per share.

Second quarter 2014 results include $5.6 million of pre-tax reorganization costs. The second quarter of 2013 included proxy contest expenses of $1.5 million and non-cash accelerated equity-based compensation of $9.1 million.

Commenting on the second quarter results, Mick McMullen, the Company's President and Chief Executive Officer stated, 'I am very pleased to report another excellent quarter at Stillwater Mining Company. Earnings attributable to common stockholders of $17.9 million were a strong result that included a $5.6 million pre-tax charge for reorganization costs.

We also benefited during the quarter from reprocessing and selling some PGM ounces from inventories that had accumulated over the past year. The drive to produce profitable ounces is evidenced by the$27.6 million increase in our net cash position, which is pleasing considering recycling gross working capital also increased by $9.8 million over the quarter.

'We continue to focus on controlling our capital and operating costs, recognizing that cost management is a profit driver we can control, irrespective of future metal price behavior, which we cannot. Efforts to control costs during the quarter included paring back our workforce through both voluntary and involuntary severance programs; completing a detailed assessment of the profit contribution of each mining area within the Stillwater Mine; carefully scrutinizing all proposed capital spending and monitoring corporate overhead.

'The Company is also benefiting from strong underlying market fundamentals in our key products, palladium and platinum. Growth in automotive production worldwide and ever more stringent emission standards combine to ensure expanding demand for these metals, while supply remains constrained.

Significant labor difficulties in South Africa during the first half of this year restricted global production and consumed much of the metal inventory on hand and most analysts project significant supply deficits for palladium and platinum this year and well into the future. Limited reinvestment in existing PGM production facilities, particularly in South Africa, also suggests that future production from that region may decline.

'This year's second quarter saw a modest decline in mine output over the previous quarter, all at the Stillwater Mine. The East Boulder Mine has continued its strong performance. I have stated publicly that our objective as a Company, rather than merely seeking to maximize production, is to maximize profitable ounces while operating in a safe manner and maintaining our social license.

In furthering this objective we may reduce production for a time in order to bypass unprofitable stopes until we have the appropriate infrastructure in place to maximize profitability. Tonnages mined at the Stillwater Mine declined slightly in the quarter in part due to mining conditions, some preferential allocation of resources toward underground mine development and to operational changes being implemented to maximize profitability, not ounces produced.

'During the quarter we commenced stoping from the first stope in the Graham Creek area. Preparations are under way to add an additional shift at the East Boulder mill, which will increase production by approximately 2,000 PGM ounces per month. We expect to see the benefit of these changes over the coming quarters. In addition, in the second quarter we began to see benefits to our recycling volumes from our new agreement with Johnson Matthey.

Based on these results and current forecasts we are updating our 2014 guidance for total mined production to a range of 510,000 - 525,000 palladium and platinum ounces and are improving our 2014 guidance for all-in sustaining costs (a non-GAAP measure) to a range of $780 - $830 per mined ounce. We are also decreasing our full-year 2014 capital expenditure guidance to a range of $125 to $135 million.'

2014 Guidance

All-in sustaining costs per mined ounce guidance for 2014 assumes the exclusion of approximately $28 per ounce recycling credit and approximately $13 per ounce of costs for foreign activities.

In the second quarter of 2014, the Company's Montana mines produced a total of 126,400 ounces of palladium and platinum, a 3.9% decrease compared to mine production of 131,500 ounces in the second quarter of 2013. The 4.7% increase in East Boulder Mine production in this year's second quarter as compared to the second quarter of 2013 was driven by slightly higher realized ore grades and higher tons. The 7.7% decline in ounces produced at the Stillwater Mine reflected lower ore tons, partially offset by a slight increase in ore grades.

Second Quarter Mine Production Comparison

Revenue from the Company's Mine Production segment for the second quarter of 2014 (including proceeds from the sale of by-products) totaled $147.2 million, a 30.6% increase from $112.7 million in the same period of 2013. Combined sales realizations for mined palladium and platinum increased for the second quarter of 2014, averaging$962 per ounce, compared to $865 per ounce realized in the second quarter of 2013. The total quantity of mined palladium and platinum sold in the second quarter of 2014 was 144,000 ounces compared to 122,300 ounces sold in the same period of 2013.

As a result of earlier constraints on reprocessing slag inventories at the Stillwater Mine, metal inventory increased through the first quarter of 2014. Subsequently, inventories have been processed and PGMs in inventory have decreased. Approximately 17,600 ounces of PGM sales from inventory were recognized during the second quarter of 2014.

The Company processed recycling material containing 134,300 ounces of palladium, platinum and rhodium through its smelter and refinery during the second quarter of 2014. This represents a decrease of 23.3% from the record total of 175,000 ounces processed during the second quarter of 2013. Recycling volumes increased relative to the March 2014 quarter by 32.3%.

Second Quarter Recycling Ounces Processed Comparison

Recycling sales volumes for the second quarter of 2014 decreased by 29.1%, to 101,400 ounces from 143,100 ounces sold in the second quarter of 2013. PGM Recycling revenue totaled $102.7 million for the 2014 second quarter, a 33.2% decrease from $153.7 million in the same period of 2013. The Company's combined average realized price for sales of recycled palladium, platinum and rhodium decreased by 6.4% to $1,002 per ounce in the second quarter of 2014 from $1,070 per ounce in the second quarter of 2013.

The Company is utilizing a non-GAAP measure of mining efficiency, All-in Sustaining Costs (AISC), in monitoring and managing its performance going forward.

This measure is calculated beginning with total cash costs per mined ounce, net of credits (another non-GAAP measure), and adding to it the recycling income credit; domestic corporate overhead and marketing costs (excluding any depreciation and amortization costs as well as research and development, non-recurring and reorganization costs included in corporate overhead costs); plus that portion of total capital expenditures associated with sustaining the current level of mining operations.

The resulting measure provides a comparative indication of the all-in resources consumed in any period to sustain the mining operations and produce at current levels.

Combined total cash costs per mined ounce, net of by-product and recycling credits, (a non-GAAP measure) averaged $550 per mined ounce for the quarter ended June 30, 2014, compared to $532 for the same quarter of 2013.

Cash Flow and Liquidity

At June 30, 2014, the Company's consolidated available cash balance was $246.4 million, compared to $286.7 million at December 31, 2013. If highly liquid investments are included with available cash, the Company's balance sheet liquidity totaled $501.9 million at June 30, 2014, an increase from $496.0 million at December 31, 2013.

Of the Company's second quarter consolidated cash balance, $18.5 million is dedicated to the Marathon project (and other related Canadian properties) and is unavailable for other corporate purposes. Net working capital-composed of total current assets (including available cash and investments), less current liabilities-decreased to$607.1 million at June 30, 2014, from $614.8 million at the end of 2013.

Net cash provided by operating activities (which includes changes in working capital) totaled $60.3 million for the six months ended June 30, 2014, compared to $30.9 million of cash provided for the same period of 2013. Cash flow from operations benefited from lower corporate overhead and somewhat higher metal prices during this year's first half. Capital expenditures, adjusted to a cash basis, were $53.8 million for the six-month period ended June 30, 2014, compared to $58.8 million in the same period of 2013.

Outstanding balance sheet debt at June 30, 2014, was $318.1 million, up from $310.7 million at December 31, 2013. The Company's reported debt balance at June 30, 2014, included approximately $282.4 million of 1.75% convertible debentures (net of unamortized discount of $114.4 million) and $2.2 million of 1.875% convertible debentures, $29.7 million of exempt facility revenue bonds, a capital lease of $3.6 million and approximately $0.2 million of financing for a small installment land purchase.

The increase in the debt balance during 2014 is attributable to the accretion of the discount on the Company's outstanding 1.75% convertible debentures.

Other Matters

During the second quarter of 2014, the Company and Johnson Matthey agreed to a five-year PGM refining and sales contract. Under the terms of this new agreement, Johnson Matthey has an exclusive five-year right to refine all of the PGM filter cake the Company produces. Johnson Matthey also has the right to purchase all of the Company's mine production of palladium and a portion of its mined platinum at competitive market prices and has the right to bid for any recycling volumes the Company has available.

The Company's existing platinum sales agreement with Tiffany is excluded from the Johnson Matthey contract. Other provisions of the Johnson Matthey agreement include a good-faith effort by Johnson Matthey to assist in growing the Company's recycling volumes, sharing of market intelligence and a cooperative effort to evaluate and possibly develop new technologies.

The contract contains a clause allowing Stillwater the ability to terminate the supply arrangement for a nominal fee. The Company, at its sole discretion, may terminate the refining arrangement after four years, in which event the Company shall pay the same nominal fee to Johnson Matthey per troy ounce of recovered PGM for the remaining term of the refining arrangement.

In June 2014, the Company provided notice that it intended to exercise its contractual right to call its $30.0 million in aggregate principal amount of outstanding 8.0% State of Montana Exempt Facility Revenue Bonds, Series 2000, issued through the State of Montana Board of Investments, due July 1, 2020 (the 'Series 2000 Bonds') at par, plus accrued and unpaid interest.

Subsequent to the end of the 2014 second quarter, the Company redeemed the entire $30.0 million aggregate principal amount of Series 2000 Bonds for the total amount of $30,040,000, including accrued interest.

The Company's total workforce at June 30, 2014, was 1,663. This is a reduction of 110 employees from a total of 1,773 at December 31, 2013. These net reductions have stemmed from reorganization efforts including both voluntary and involuntary severances as well as normal workforce attrition. The Company has no further significant personnel cutbacks targeted at this point outside of normal attrition, but will continue to assess its manpower requirements going forward.

The Company continues to examine potential alternatives to realize value from Altar, its copper-gold prospect in Argentina. The Company has scaled back its activities at Altar (a project deemed to be non-core), while maintaining a minimum level of activity that permits it to retain its interest in the Altar concessions while limiting spending to essential services.

The Company owns a 75% interest in the Marathon PGM-copper project and related properties in Canada. Mitsubishi Corporation owns the remaining 25%. As announced previously, it has become clear that the project as presently conceived would not provide an acceptable economic rate of return for shareholders. The Company and its joint venture partner are examining various alternatives to enhance project returns.

At this time there is no assurance that these alternatives will provide the economic improvement required to make the project viable. The Company is maintaining its tenure position at Marathon and looking for opportunities to realize value from the project in the future. However, until such time as the project is able to demonstrate viable economics, the Company has scaled back spending on the Marathon project.

Second Quarter Results - Details

For the second quarter of 2014, the Company's Stillwater Mine produced 84,000 ounces of palladium and platinum, a decrease of 7.7% from the 91,000 ounces produced in the second quarter of 2013. Production at the Company's East Boulder Mine of 42,400 ounces in the second quarter of 2014 reflected an increase of 4.7% over the 40,500 ounces produced in the same quarter of 2013.

Costs of metals sold (before depletion, depreciation and amortization expense) decreased to $189.8 million in the second quarter of 2014 from $226.5 million in the second quarter of 2013. Mine Production costs included in costs of metals sold increased to $89.5 million in the 2014 second quarter from $77.4 million in the 2013 second quarter. Higher royalties and severance taxes driven by higher realized PGM prices contributed to the increase in cost of metals sold.

PGM Recycling costs totaled $100.3 million in the second quarter of 2014, down from the$149.2 million reported in the second quarter of 2013. This decrease was due to significantly lower recycling volumes processed and sold and the corresponding decrease in the total cost of acquiring recycling material for processing.

General and administrative (G&A) costs were $8.2 million in the second quarter of 2014, down from the $14.1 million incurred during the same period of 2013. The reduced G&A expense in this year's second quarter is attributable mostly to lower compensation expense in 2014. The second quarter of 2013 included G&A costs related to the retirement of the Company's former Chief Executive Officer, one-time software licensing fees and higher share based compensation expense.

The second quarter of 2014 included reorganization costs of $5.6 million as compared to the second quarter of 2013, which included proxy contest expenses of $1.5 million, and non-cash accelerated equity-based compensation of $9.1 million.

Exploration expenses were $0.7 million in the second quarter of 2014 compared to $2.2 million in the same period of 2013 as a result of steps taken to scale back exploration at the Altar and Marathon projects. Marketing expenses declined to $0.4 million in the 2014 second quarter compared to $2.3 million in the same quarter of 2013, reflecting the continuing curtailment of palladium jewelry marketing efforts.

Interest expense in the second quarters of 2014 and 2013 was $5.9 million and $5.4 million, respectively, net of capitalized interest of $1.1 million and $1.2 million, respectively.

During the second quarter of 2014, the Company recorded a net foreign currency transaction gain of $0.2 million. The net foreign currency transaction gain recorded for the second quarter of 2013 was $5.2 million, primarily attributable to remeasurement of the deferred tax liability recorded in association with the acquisition of Peregrine Metals Ltd.

First Six Months' Results - Details

During the first six months of 2014, the Company's Stillwater Mine produced 173,700 ounces of palladium and platinum, a decrease of 5.4% from the 183,600 ounces produced in the same period of 2013. Production at the Company's East Boulder Mine of 83,400 ounces for the first six months of 2014 reflected an 11.2% increase from the 75,000 ounces produced in the same period of 2013.

Costs of metals sold (before depletion, depreciation and amortization expense) decreased to $358.5 million for the six-month period ended June 30, 2014, from $419.1 million in the same period of 2013. Mine Production costs included in costs of metals sold increased to $167.5 million for the six-month period ended June 30, 2014, from$153.1 million in the same period of 2013.

PGM Recycling costs, which primarily reflect the cost of acquiring spent catalytic materials for processing, totaled $191.0 million for the six-month period ended June 30, 2014, down from the $266.0 million reported in the same period of 2013. The decrease was due to lower volumes sold and the related reduction in total cost to acquire materials for processing.

General and administrative (G&A) costs were $17.4 million for the six-month period ended June 30, 2014, a decrease from the $26.6 million incurred during the same period of 2013. Included in the G&A for the six-month period ended June 30, 2013, were costs related to the retirement of the Company's former Chief Executive Officer, one-time software licensing fees and higher share based compensation expense.

The six-month period ended June 30, 2014, included reorganization costs of $6.0 million as compared to the same period of 2013 which included proxy contest expenses of $4.3 million, and non-cash accelerated equity-based compensation of $9.1 million. The Company recognized $1.7 million in total exploration expenses related to its mineral properties in both Canada and South America for the six-month period ended June 30, 2014, and $8.1 million in the same period of 2013.

Marketing expenses declined to $0.5 million for the six-month period ended June 30, 2014, compared to $4.0 million in the same time period of 2013, reflecting the continuing curtailment of marketing palladium for jewelry.

Interest expense for the first six months of 2014, and 2013 was $11.7 million and $12.1 million, respectively, net of capitalized interest of $2.2 million and $2.0 million, respectively.

During the six-month periods ended June 30, 2014 and 2013, the Company recorded a net foreign currency transaction gain of $4.4 million and $9.5 million, respectively. Essentially all of these net gains related to the remeasurement into U.S. dollars of the deferred tax liability recorded in association with the acquisition of Peregrine Metals Ltd. The gain reflects the effect of the high inflation rate in Argentina as the obligation is remeasured from Argentine pesos into U.S. dollars.

About Stillwater Mining Company

Headquartered in Billings, Montana, Stillwater Mining Company is the only U.S. producer of platinum group metals (PGMs) and the largest primary producer of PGMs outside of South Africa and the Russian Federation. PGMs are rare precious metals used in a wide variety of applications, including auto catalysts, fuel cells, hydrogen purification, electronics, jewelry, dentistry, medicine, coinage and other applications.

The Company is engaged in the development, extraction, processing, smelting and refining of PGMs from a geological formation in southern Montana known as the J-M Reef and from the recycling of spent catalytic converters. The J-M Reef is the only known significant source of PGMs in the United States and the highest-grade PGM resource in the world.

The Company also owns the Marathon PGM-copper deposit in Ontario, Canada, and the Altar porphyry copper-gold deposit located in the San Juan province of Argentina. The Company's shares are traded on the New York Stock Exchange under the symbol SWC and on the Toronto Stock Exchange under the symbol SWC.U.

Some statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and, therefore, involve uncertainties or risks that could cause actual results to differ materially. These statements may contain words such as 'believes,' 'anticipates,' 'plans,' 'expects,' 'intends,' 'estimates,' 'will' or similar expressions.

Such statements also include, but are not limited to, comments regarding expansion plans, costs, grade, production and recovery rates; permitting; financing needs and the terms of future credit facilities; exchange rates; capital expenditures; increases in processing capacity; cost reduction measures; safety; timing for engineering studies; environmental permitting and compliance; litigating; labor matters and the palladium, platinum, copper and gold market.

The forward-looking statements in this report are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments, and other factors that we believe are appropriate under the circumstances. These statements are not guarantees of the Company's future performance and are subject to risks, uncertainties and other important factors that could cause its actual performance or achievements to differ materially from those expressed or implied by these forward-looking statements.

Additional information regarding factors that could cause results to differ materially from management's expectations is found in the section entitled 'Risk Factors' in the Company's 2013 Annual Report on Form 10-K, in its quarterly Form 10-Q filings, and in corresponding filings with Canadian securities regulatory authorities.

The Company intends that the forward-looking statements contained herein be subject to the above-mentioned statutory safe harbors. Investors are cautioned not to rely on forward-looking statements. The forward looking statements herein speak only as of the date of this release. The Company disclaims any obligation to update forward-looking statements.

Reconciliation of Non-GAAP Measures to Consolidated Costs of Revenues

The Company utilizes certain non-GAAP measures as indicators in assessing the performance of its mining and processing operations during any period. Because of the processing time required to complete the extraction of finished PGM products, there are typically lags of one to three months between ore production and sale of the finished product. Sales in any period include some portion of material mined and processed from prior periods as the revenue recognition process is completed.

Consequently, while costs of revenues (a GAAP measure included in the Company's Consolidated Statements of Comprehensive Income (Loss)) appropriately reflects the expense associated with the materials sold in any period, the Company has developed certain non-GAAP measures to assess the costs associated with its producing and processing activities in a particular period and to compare those costs between periods.

While the Company believes that these non-GAAP measures may also be of value to outside readers, both as general indicators of the Company's mining efficiency from period to period and as insight into how the Company internally measures its operating performance, these non-GAAP measures are not standardized across the mining industry and in most cases will not be directly comparable to similar measures that may be provided by other companies.

These non-GAAP measures are only useful as indicators of relative operational performance in any period, and because they do not take into account the inventory timing differences that are included in costs of revenues, they cannot meaningfully be used to develop measures of earnings or profitability.

Total Consolidated Costs of Revenues: For the Company as a whole, this measure is equal to total costs of revenues, as reported in the Consolidated Statements of Comprehensive Income (Loss). For the Stillwater Mine, the East Boulder Mine, and other PGM activities, the Company segregates the expenses within total costs of revenues that are directly associated with each of these activities and then allocates the remaining facility costs included in total cost of revenues in proportion to the monthly volumes from each activity.

The resulting total costs of revenues measures for the Stillwater Mine, the East Boulder Mine and other PGM activities are equal in total to total consolidated costs of revenues as reported in the Company's Consolidated Statements of Comprehensive Income (Loss).

Total Cash Costs (Non-GAAP): This non-GAAP measure is calculated as total costs of revenues (for each mine or combined) adjusted to exclude gains or losses on asset dispositions, costs and profit from recycling activities, revenues from the sale of mine by-products, depreciation and amortization and asset retirement costs, and timing differences resulting from changes in product inventories. The Company uses this measure as a comparative indication of the cash costs related to production and processing operations in any period. It is a measure of extraction efficiency.

When divided by the total tons milled in the respective period, Total Cash Costs per Ton Milled (Non-GAAP) -- measured for each mine or combined-provides an indication of the level of cash costs incurred per ton milled in that period. Because of variability of ore grade in the Company's mining operations, production efficiency underground is frequently measured against ore tons produced rather than contained PGM ounces.

Because ore tons are first weighed as they are fed into the mill, mill feed is the first point at which production tons are measured precisely. Consequently, Total Cash Costs per Ton Milled (Non-GAAP) is a general measure of production efficiency, and is affected both by the level of Total Cash Costs (Non-GAAP) and by the volume of tons produced and fed to the mill.

When divided by the total recoverable PGM ounces from production in the respective period, Total Cash Costs per Ounce (Non-GAAP) -- measured for each mine or combined-provides an indication of the level of cash costs incurred per PGM ounce produced in that period. Recoverable PGM ounces from production are an indication of the amount of PGM product extracted through mining in any period.

Because ultimately extracting PGM material is the objective of mining, the cash cost per ounce of extracting and processing PGM ounces in a period is a useful measure for comparing extraction efficiency between periods and between the Company's mines. Consequently, Total Cash Costs per Ounce (Non-GAAP) in any period is a general measure of extraction efficiency, and is affected by the level of Total Cash Costs (Non-GAAP), by the grade of the ore produced and by the volume of ore produced in the period.

All-In Sustaining Costs (Non-GAAP): This non-GAAP measure is used as an indicator from period to period of the level of total cash required by the business to maintain and operate the existing mines, including corporate administrative costs and replacement capital.

The measure is calculated beginning with total cash costs, net of credits, (another non-GAAP measure, described above), and adding to it the recycling income credit, domestic corporate overhead costs and marketing costs (excluding any depreciation and amortization costs as well as research and development, non-recurring and reorganization costs included in corporate overhead costs), and that portion of total capital expenditures associated with sustaining the current level of mining operations.

When divided by the total recoverable PGM ounces in the respective period, All-In Sustaining Costs per Mined Ounce (non-GAAP) provides an indication of the level of total cash required to maintain and operate the mines per PGM ounce produced in the period. Recoverable PGM ounces from production are an indication of the amount of PGM product extracted through mining in any period.

Because the objective of PGM mining activity is to extract PGM material, the all-in cash costs per ounce to produce PGM material, administer the business and sustain the operating capacity of the mines is a useful measure for comparing overall extraction efficiency between periods. This measure is affected by the total level of spending in the period and by the grade and volume of ore produced.

IR Contact:

Mike Beckstead

Stillwater Mining Company

Tel: 406-373-8971

Email: investor-relations@stillwatermining.com


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: ENP Newswire


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters